Federal Reserve Governor Barr warns that further rate cuts should be approached with caution, stating that tariffs may keep inflation elevated

According to the Zhitong Finance APP, Federal Reserve Board Governor Christopher Waller stated on Thursday that the Federal Reserve should exercise caution in further interest rate cuts to allow more time to observe economic data and assess the balance of inflation and labor market risks. Speaking at the Minnesota Economic Club, he pointed out that current inflation still has upward pressure, while the labor market shows signs of some weakness, putting monetary policy in a "dilemma."

Waller expressed his support for the Federal Open Market Committee (FOMC) decision to lower the policy interest rate by 0.25 percentage points last month, but emphasized that this does not mean a series of consecutive rate cuts should begin. He warned that the new round of tariff measures from the Trump administration could drive up prices, making it more difficult for inflation to decline. According to his forecast, the core Personal Consumption Expenditures (PCE) price index of the Federal Reserve is expected to rise above 3% by the end of the year, while overall inflation may not return to the 2% target level until the end of 2027. "For Americans who have experienced high inflation, waiting another two years to return to the target will be a long process."

Waller noted that although businesses have not yet fully passed on tariff costs to consumers, their plans to restore profit margins suggest that price increases may persist longer, creating a "slow but steady" upward trend in inflation. He warned that this situation could lead consumers to become more convinced that high inflation will become the norm.

He also mentioned that recent data shows consumer spending remains strong, while President Trump’s latest announcement of new tariffs on trucks may exacerbate inflationary pressures. "I am skeptical of the view that 'short-term inflation caused by tariffs should be ignored.'"

Waller stated that a softening labor market could help alleviate upward price pressures, but currently, due to the federal government shutdown and the lack of official data, it is difficult to assess the actual extent of demand slowdown. He pointed out that with output growth slowing and factors such as tariffs and labor supply weighing down, the economy may face further pressure in the coming months. He said, "If labor market risks intensify, the FOMC may need to ease policy more quickly, and I believe we will act decisively to stabilize the economy."